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Risks of Real Estate Investing – And What You Can Do About Them

March 12, 2008 by Marco Santarelli

Everyone would be a millionaire if real estate investing were 100% risk free. No one would have any reason not to invest. Only those real estate investors who are not afraid to face risks and know how to deal with them will be successful in real estate investing. If you want this to be you, take a little time to learn the risks involved with investing in real estate.

Potential for Negative Cash Flow: Like many other investments, real estate has the potential to create losses. Whenever you complete a deal with less money than you started with, you've created negative cash flow. And too much negative cash flow can leave you broke. So it's very important that you know how to find and analyze a good real estate investment. If this is a skill you are working on, you can reduce your risk and save some time by using the services of a real estate investment firm.

Availability of Funds: One of the primary barriers of investing in real estate is the lack of funding. Even though you can invest in real estate without using your own money, you still need to have money from somewhere. There are many creative ways of getting other people's money (OPM) to complete a transaction, and many good books have been written on the subject. One of the latest incarnations of OPM has been the use of corporate credit.

Time Constraints: Some types of investments require more time than others, for example distressed and rehab properties. Other types of investments require you to be available during business hours. If your regular job demands most of your time, you might find it difficult to make time to invest in real estate. Understand the time involved with the various types of real estate investments so you can plan your schedule around your investing.

Need for an Exit Strategy: Before you go into a deal, you need to have a feasible plan for getting rid of your investment property. Note the word “feasible.” Your exit strategy has to be logical and doable; otherwise, it's not a very good exit strategy. Your plan may be to fix-and-flip the property right away, or it may be to lease-and-hold for 10 years.Be sure to invest with a clear and specific exit strategy in mind. And always have a contingency plan in place in case situations come up that are out of your control.Real estate investing, like any other form of investing, has some potential risks. On the positive side, these risks are associated with the potential for high returns. But with proper planning and ongoing education you will be successful as a real estate investor.

Filed Under: Real Estate Investing Tagged With: Investment Properties, Investment Property, Real Estate Investing, Real Estate Investment

About Marco Santarelli

Marco Santarelli is an investor, author, Inc. 5000 entrepreneur, and the founder of Norada Real Estate Investments – a nationwide provider of turnkey cash-flow investment property.  His mission is to help 1 million people create wealth and passive income and put them on the path to financial freedom with real estate.  He’s also the host of the top-rated podcast – Passive Real Estate Investing.

Comments

  1. Aizan says

    April 24, 2008 at 9:03 pm

    The best way to minimize risk in Real Estate investing, just like any other, is to diversify your portfolio. 1/3 in Real Estate, 1/3 in stocks and 1/3 in liquid investments.

    Another is diversifying your income. Multiple streams of income is great in times like these.
    The market took a dump on a lot of us, and though we are still working in Real Estate, because it is a good time to buy, we need to offset some of those negative cash flow scenarios we had going before the bubble burst. The idea would be to have multiple streams of income and grow our portfolio of properties and stocks.

    Thank you for your time and consideration.

    Regards,
    Aizan
    http://www.my15kprofit.com

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